ODOT's Fiscal Cliff Explained

Oregon State Legislature sent this bulletin at 07/05/2016 09:37 AM PDT

Oregon
has
been spent into a monumental, multi-agency, multi-billion dollar
budgetary hole during the past several legislative sessions. The Oregon
Department of Transportation (ODOT) is among the state agencies facing the worst
financial challenges for the 2017-19 biennium and beyond. Most of the agency’s financial
woes are the result of legislative and agency management decisions made over
the past dozen years.

The
lion’s share of ODOT’s state highway division funding is raised by the fuel and
weight-per-mile taxes, as well as certain vehicle license and registration
fees. That highway fund revenue is constitutionally
dedicated to the maintenance, preservation and construction of Oregon
highways and bridges.

ODOT’s
budget has traditionally been done on a pay-as-you-go basis. Prior to 2002, the
agency was not authorized to spend more revenue than it collected during each
budget cycle.

That
all changed during the administrations of former Governor’s John Kitzhaber and
Ted Kulongoski. An undeniably large backlog of much-needed highway and bridge improvements
had accumulated. At the time, the amount of money needed to pay for those deferred
highway construction projects would have required very significant increases in
fuel and weight-per-mile taxes. Rather than taking potentially unpopular actions
to raise the necessary revenue, legislators began approving a series of laws
authorizing borrowing the money to pay for the needed highway projects.

Legislators
were told the agency would be able to immediately spend about six dollars, on highway
and bridge construction projects, for each dollar borrowed and bonded against future
income from newly enacted highway taxes and fees. The principle and interest on
the new highway revenue bonds would be paid by future revenue raised from the
new taxes and fees.

A
super-majority of the Legislative Assembly allowed themselves to be repeatedly convinced
this was good fiscal policy. They enacted smaller tax and fee increases, and
bonded a lot of the future revenue from those increases, to get a much greater
“bang for the buck.”

Beginning
in 2003, the Legislative Assembly enacted a series of Oregon Transportation
Investment Acts as well as the 2009 Oregon Jobs and Transportation Act to help
address the backlog of bridge repairs and the expansion of Oregon highway
capacity. The preponderance of the new highway and bridge construction projects
were funded by issuing highway revenue bonds.

The
new laws required the debt to be repaid with fuel and weight-per-mile tax
receipts collected over the next 25 years. I voted against these bills because
I was concerned they would diminish the state highway fund and negatively
affect ODOT’s future ability to maintain highways throughout Oregon.

The
Legislative Assembly also authorized borrowing several hundred million dollar
in lottery revenue bonds to fund a series of Connect Oregon bills. Originally,
the funding was to be used for needed multimodal freight and public transit
projects. Most of those projects have already been completed. They will be paid
for out of the state’s share of future lottery earnings over the next 25 years.
I voted for these bills because they did not negatively impact the capacity of
the state highway fund.

The
ODOT highway division has been spending nearly half a billion dollars of this borrowed
money during each two-year budget cycle for more than a decade. The projects funded
with borrowed money did pay for improvements to bridges and other key aspects
of our state highway, transit and freight infrastructure. However, the debt
accrued to fund all that work is now jeopardizing the agency’s entire budget.

As
previously stated, the principle and interest on all highway revenue bonds must
be paid out of future state highway funds. The debt service on currently
outstanding highway revenue bonds will cost nearly half a billion dollars per
budget cycle until the year 2034. Additionally, the principle and interest on
lottery revenue bonds must be paid from the state’s share of future lottery
earnings.

ODOT
has already spent all but about $100 million of the bonded money. Between four
and a half billion and five billion dollars of future highway fund and lottery revenue
will be required to pay the total principle and interest on all of that
borrowed money. Not a single dollar of that enormous amount of money will be
available to maintain, preserve or build Oregon highways until after the year
2034.

In
short, a future generation will be forced to pay for the roads and bridges and
other facilities constructed with the proceeds from these highway and lottery revenue
bonds. That infrastructure will largely be deteriorated by the time the debt is
repaid.

The
story being told to Oregonians is that revenues derived from the fuel taxes are
declining and are now inadequate to meet the agency’s needs. Further, the
alleged revenue reduction is supposedly due to increasing fuel efficiency and
the advent of more electric and hybrid vehicles.

These
allegations simply are not accurate. Both fuel tax and weight per mile tax
revenues coming into Oregon state highway fund coffers have continued to
increase each biennium in an almost linear fashion. Receipts from vehicle
license and registration fees have continued
to grow in a similar manner.

The
real reasons for ODOT’s budget shortfall are significantly more complex. The
monumental budget deficit is caused by a combination of the agency’s growing
and prolonged debt payments, the reality that there is no more borrowed money
to spend, the impending huge compensation increases for its approximately 2,500
highway division employees and its propensity for spending too much highway
fund revenue for “highway-related” purposes. The state’s own graphics demonstrate
both
the causes and the immense
size
of that fiscal cliff.

ODOT
spends an enormous amount of highway fund money on agency administration, land
use and environmental mitigation planning, as well as other non-highway motor
vehicle services, including certain funding for public transit, highway and
bridge art, extensive landscaping, facilities for bicycle and pedestrians,
solar installations and electric vehicle charging stations. Much of this
spending could, and I believe should, be refocused on the actual preservation,
maintenance and construction of highways and bridges.

ODOT
leadership and some legislators appear to be promoting the enactment of a
vehicle mileage tax (VMT) to raise the money needed to continue funding its
operations. According to this
recent article in the Oregonian, the VMT may be among the
options considered by lawmakers in the upcoming 2017 session to help ODOT fill
its ever-growing budget gap.

Make
no mistake, simple math demonstrates the proposed 1.5 cent per mile VMT is
anything but a “revenue neutral” shift in how Oregonians are charged to use
their highways. It would create a massive tax increase for vehicles that are designed
to comply with the federal Corporate
Average Fuel Efficiency(CAFE)
standards.

Oregon
currently charges a 30 cent per gallon tax on motor fuel. An automobile making
20 miles per gallon (MPG) would break even at the proposed level of taxation
and vehicles making less than 20 MPG could actually pay less. However, for vehicles designed to comply with
CAFE standards, the proposed VMT will amount to a 50 percent increase for cars
making 30 MPG, a 100 percent increase for cars making 40 MPG and a 200 percent
increase for cars making 60 MPG.

Trucks
currently pay a commensurate weight-per-mile tax based on their calculated share
of wear and tear they cause to Oregon roads. The proposed new tax would
“equitably” increase the weight-per-mile tax to maintain that balance of shared
cost.

Moreover,
the VMT will unfairly tax rural Oregonians who must drive further for virtually
every daily activity. For instance, a five-mile round trip to the grocery store
would tax an urban dweller seven and a half cents, while each 70-mile round
trip to town will tax the rural Oregonian $1.05, regardless of vehicle fuel
mileage.

As
is often the case in Oregon, ODOT officials began their attempts to implement a
VMT through voluntary means. A pilot
project, OreGO, was launched in the hopes of
demonstrating Oregon’s success in being the first state in the nation to fund
its highway division with a VMT.

ODOT
spent more than $6 million attempting to convince a minimum of 5,000 Oregonians
to volunteer to sign up for the pilot program. Agency expenses included
extensive travel to other states and nations to convince their governments to
enact similar taxes. Thus far, no other jurisdiction within the United States has
enacted a VMT.

The
lack of public support among Oregonians for either the VMT or the pilot program
is also apparent. To date, fewer than 900 Oregonians have volunteered for the
demonstration project. The bleak, less than 20 percent participation rate, was
achieved only after the agency’s staff mounted a statewide promotional campaign
and ODOT paid a public relations firm more than half a million dollars over two
years to promote the pilot project.

In
order to bolster those dismal volunteer numbers, the aforementioned Oregonian article states that ODOT
appears to have leveraged the inclusion of about 50 more vehicles from the
fleets of four private firms that contract with the agency’s highway
construction division. Still, basic math shows how this social engineering
experiment has cost taxpayers nearly $7,000 per vehicle registered in the
program.

The
use of borrowed money, and other budgetary ploys, is far too often instrumental
in the legislative process. The gimmicks are routinely used for building
political and public support for programs that would not otherwise pass
scrutiny or gain approval. The long-term consequences of such approaches are
proving to be both prohibitively expensive to the public and severely limiting
to the ability of our public agencies to function effectively. Oregon voters
should expect, and demand, better use of their tax money.

Political
leadership assumes that someone is actually following. Oregon’s elected and
bureaucratic elite have a long history of attempting to be first, regardless of
precedent, fiscal confidence or widespread public support. Ironically, we were
the first state in the nation to implement a gas tax!

Another
good example of this includes our statewide, comprehensive land use system that
we started in the 1970s that no other state has emulated to date. More recent
examples include our "motor
voter" automatic voter registration program,
a three-tiered
minimum wage that perpetuates income inequality based
on geography and an anti-coal
bill
that will nearly double Oregonians’ utility bills, do very little to reduce
global greenhouse gas emissions and, at best, subsidize green energy jobs in
other states.

Too
often, these well intended “we know better than the voting public” schemes have
been enacted at the expense of their constituents. In my opinion, it is time
for ODOT management and legislators alike to abandon their VMT concept that
virtually no one else appears to like or want.

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